IPO will lift the mask from Facebook

After the curtain was finally raised yesterday on the hottest internet initial public offering in almost a decade, some of the questions that have surrounded the real value of Facebook and its hold over 845 million users worldwide have begun to be answered.

Enormous profits are being generated, revenues are growing at a healthy clip and the company management has started to elaborate on where growth may come from.

However, plenty of uncertainties remain about what the future holds for the company, with its unique philosophy and enigmatic leader, once the reality of life as a public company dawns.

As well as being ridiculously wealthy for his age, is the 27-year-old Mark Zuckerberg really to be the genius business leader of his generation? Or will his ideas and methods, so unusual and questionable as to inspire a Hollywood biopic, become an unsustainable vexation under the unforgiving spotlight of Wall Street?

The answers to those questions will have enormous importance, not just to Facebook and its investors but to the growing swell of second-wave internet companies around the world whose valuations are riding somewhat on its coat-tails, and to the media and business interests that are already beginning to see their futures entwined with the social web.

Yesterday’s $US5 billion IPO submission to the US Securities and Exchange Commission (an edited version of which appears below this column) was an unusually colourful document, befitting the interest many had in reading it. A corporate manifesto laid out in letter form by Zuckerberg spoke of noble intentions for connecting individuals and communities, and of retaining “The Hacker Way" for developing its product.

It called to mind both the ethos of a confident start-up and a throwback to the endless possibilities and “do no evil" values espoused by Google upon its own public bow back in 2004.

“Hackers believe that something can always be better, and that nothing is ever complete. They just have to go fix it – often in the face of people who say it’s impossible or are content with the status quo," Zuckerberg wrote.

Related Quotes

Company Profile

“There is a huge need and a huge opportunity to get everyone in the world connected, to give everyone a voice and to help transform society for the future. The scale of the technology and infrastructure that must be built is unprecedented, and we believe this is the most important problem we can focus on."

But investors with less personal reasons for sticking with Facebook than its current backers will question how this attitude can transition into a company that has to report its spending and direction quarterly.

Those with memories that stretch back to the start of the century will also be seeking re-assurance that Facebook is sufficiently entrenched in users’ lives not to sink like its forgotten precursor, MySpace.

Fierce competition for online influence and advertising dollars from Google, as well as increased rivalry with Apple, Amazon and even Microsoft, mean Facebook is stepping into the ring with some fearsome adversaries.

“I think Facebook’s culture will last a long time," says Ray Valdes, lead analyst and Facebook specialist at research firm Gartner.

“Google had something similar with its ‘do no evil’ mantra and corporate culture, but after all these years that is getting a little bit frayed at the edges. Facebook is earlier on that path and will certainly be able to maintain that trajectory for several years, even as it grows."

Valdes is close friends with numerous Facebook engineers and says Zuckerberg’s commitment to the Hacker Way is genuine and is impressed on his staff.

The company held one of its hackathon events a couple of weeks ago at which engineers get together to build prototypes for any new ideas they have. The events have spawned some of Facebook’s more successful innovations, and Valdes says the ethos is helping Facebook lure away the best talent from its major rival.

Google used to brag about its Google Labs, which it described as “a playground where our more adventurous users can play around with prototypes of some of our wild and crazy ideas". But Google Labs was closed last July so the company could focus more closely on profitable ventures.

“There has been a good number of engineers that have left Google and moved over to Facebook, and part of the appeal is the so-called Hacker Way culture that Zuckerberg continues to cultivate," Valdes says.

“Google is, of course, a major competitor, particularly with its Google+ social network, but we should credit Facebook management for accepting that they face a continual battle for maintaining and increasing user engagement."

Indeed, in the spirit of getting on the front foot, Facebook warns potential investors of numerous potential threats that could negatively affect its future prospects.

These range from the loss of Zuckerberg and chief operating officer Sheryl Sandberg to new controversies and reactions to privacy lapses and a failure to further monetise the platform.

“Our business is subject to complex and evolving US and foreign laws and regulations regarding privacy, data protection and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could harm our business," it conceded.

While its exposure to potential new competitors and the vagaries of the global advertising market are unavoidable, Facebook is attempting to mask doubts about Zuckerberg’s ability to handle some of the more traditional business skills of a public company CEO by elevating the status of Sandberg.

The former vice-president at Google is expected to take on much of the responsibility for dealing with analysts and financial media.

While it is clear that Zuckerberg has demonstrated a genuine capacity for delivering growth and maturation of the business, numerous analysts have pointed to the solid executive team, including Sandberg and chief financial officer David Ebersman, as a reason to have confidence in the popular website maturing into a proper grown-up business.

“Zuckerberg does actually have some talent in the more traditional business skills of negotiation and numbers, but it is important for the company to show that there are other executives, apart from him, that are there and playing an important role," Valdes says.